Time out? Alternative strategies?

Our ds almost 2.5 is just starting to really push the boundaries and challenge our authority (yes, he is a late developer). Most of the time he is compliant and helpful, but sometimes his behaviour is a bit of a nightmare. We are committed to avoiding any form of discipline that involves hurting him either physically or verbally, but the only thing people seem to suggest is time-out.

My problems with time-out are
(1) He is a very attached child, and being put apart from us is so distressing for him that he just cries, instead of thinking about what he's done wrong
(2) I want him to develop a bit of independence, and using time alone as a punishment might discourage this
(3) It's not very practical to have a time-out or "naughty" chair in the room we're in as he wouldn't stay on it, I'd have to pretty much hold him down and then I can't look after my baby or get anything else done

Do you think the method just doesn't suit us? Or is he not quite old enough / developmentally ready? What other gentle methods do people use?

I don't agree with time-out, I think it's a band-aid solution to a bigger problem. What exactly are you having trouble with? I believe strongly in self-discipline, so a lot of the way I discipline is sitting down with my girls and talking about why we don't do something, etc. I also really believe in natural consequences to help them with their actions.

OK, I'm not talking about any one specific thing here. Usually we explain why we have certain rules and he keeps to them. Eg, we don't throw the furniature around because it could hurt peolple or break things. We also try to minimise the number of rules by allowing him to do things he wants to whenever possible. Like he kept wanting to play with scissors, so we bought him his own scissors, and he can cut up old catalogues as long as he's sitting down with an adult present. We have also taught him the phrase "not negotiable" which we apply to things that we have to do for safety, eg keeping his carseat harness on and holding hands when we cross the road, so he doesn't resist those things.

The main problem we have is when he gets into a defiant mood. He knows perfectly well what he should be doing/not doing but just keeps misbehaving for the sake of it, or to see what mum and dad will do, or whatever. It's like he suddenly decides to rampage around the house looking for trouble and doing everything he can think of that he's not meant to do. If you ask him to come, or go somewhere he'll run off in the opposite direction to see whether we will chase him. I suspect it's partly to get attention, and partly to see how much power he can have over us. We do try to use consequences, but a lot of the things he does don't really have natural consequenses (or ones that he would care about). Eg if he stands there opening and slamming shut a cupboard door repeatedly for 10 minutes, the door hinge might wear out, and my temper might wear out, but what could be the consequence for him?

What about something like... "If you can't stop banging the drawers shut you're going to have to move away and sit with me for a few minutes" I do this with my girls (usually they are kicking and screaming at this point) and I sit them down with me and I try and calm them down, once they're calm I talk about why we can't do what they were just doing. This seems to work eventually here. Definitely not a quick fix, but it does eventually work.

I agree time out and 'naughty' chairs really aren't a good way to go. Remember at 2.5 he is still learning so many things and one of them is emotional control.
Sometimes he's probably just frustrated or overwhelmed (as we can all be) and it shows by him acting out. Try and catch the triggers early on and get him settled and calm before he gets worked up.
Or else ideas such as sitting with you, cuddles or allowing him some time alone (if it seems he needs that- rather than shumming him like time out) can help. Try not to explain what he's doing wrong when he's in a state- just let him calm down first.
Hope it helps!! Sounds like you're doing a wonderful job!